Health Management to Acquire Mercy

Health Management Associates (HMA - Analyst Report), a leading operator of hospitals, recently revealed that its subsidiary had reached a definitive agreement to purchase the assets of Mercy Health Partners, a unit of Catholic Health Partners. As a consequence, Health Management will take over, or lease, all 7 hospitals of Mercy Health Partners, with 1,323 licensed beds, and further continuum-of-care services, which is a part and parcel of the East Tennessee health system based out of Knoxville.    

Mercy Health Partners has operated in East Tennessee for over 80 years. It has a reputation for delivering quality care and has received several awards from Thomson Reuters and HealthGrades.

The hospitals that are a part of the deal include, among others, Mercy Medical Center West in Knoxville (101 beds), Baptist Hospital of Cocke County in Newport (74 beds), Mercy Medical Center St. Mary’s in Knoxville (401 beds), St. Mary’s Jefferson Memorial Hospital in Jefferson City (58 beds) and St. Mary’s Medical Center of Campbell County in LaFollette (66 beds).

The concerned subsidiary of Health Management will also substantially take over all of Mercy’s ancillary health care facilities (licensed for 197 beds) located in the Knoxville, Tennessee area and the erstwhile Riverside hospital campus (licensed for 293 beds).

According to a company spokesperson, Health Management is a facilitator enabling hospitals provide top-class health care in their communities. It has a nation-wide reputation of being a good operator of facilities. 

Mercy Health Partners has annual net revenues of about $600 million. The purchase consideration for the deal is expected to be about $525 million, with adjustments for working capital, and the assumption of particular long-term lease liabilities. The transaction is subject to review and regulatory approval by appropriate authorities, including the Vatican, and other customary conditions for closing. The deal may be completed by October 1, 2011.

Once the deal is completed, Health Management, and its subsidiaries, will run 66 hospitals, with about 10,300 licensed beds spread across the U.S. The company is an active acquirer of underperforming hospitals with a turnaround potential in high-growth markets. Health Management’s competitors, in niche markets, include Community Health Systems (CYH - Snapshot Report) and LifepointHospitals (LPNT - Snapshot Report).

Health Management’s first-quarter 2011 earnings per share of 22 cents beat the Zacks Consensus Estimate by a penny. The company continues to emphasize its three long-standing initiatives, namely emergency room operations, physician recruitment and market development, which have facilitated admissions. We are relieved that bad debt is no longer an area of looming concern.

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